Why might a business want to grow?
- Their existing products may be in the later stages of their life cycles.
- The business may lack sufficient knowledge or resources to develop organically.
- The speed of growth is a high priority for the company.
How might a business grow?
- Developing & launching new products
Limitations of take-overs.
- Issues of changes in management.
- Resistance from employees.
- High costs.
- Conflicting management styles, structures or cultures.
- Unhappy customers or suppliers.
Joint venture: A separate business identity created by two or more companies, it involves shared ownership, risks, and returns. In some cases, businesses may join together short-term for a project.
Lateral merger: The purchase of a firm who is in a related field. I.e. Confectionary company may purchase a chewing gum company (Mars merged with Wrigley).
Conglomerate merger: The merger of two firms who have no common interest.
Demerger: Happens where one firm separates into two or more companies or sells a part of their business. I.e Fosters, Talk-Talk, Cadbury.
Partial demerger: The parent company still holds a stake in the demerged business.
Reasons for a demerger:
- To focus on core business to ease costs and improve profit margins.
- To reduce the risk of diseconomies of scale (Business grows too much to withstand the increase of costs per unit)
- To raise money from sales of other holdings to give back to shareholders.
- To have a strategy to defend the company from competition authorities who…